(CN) – Bank of America agreed to pay $33 million on Monday to settle a suit by the Securities and Exchange Commission saying the bank intentionally failed to tell investors about billions of dollars in bonuses paid to Merrill Lynch employees just before the two companies merged.
Upon the acquisition of Merrill Lynch in September 2008, Bank of America executives allowed Merrill to pay their employees up to $5.8 billion in discretionary year-end bonuses.
The agreement stated that 60 percent of the bonuses would be paid in cash and the remaining 40 in stock. The two companies released a joint proxy statement last November in an attempt to solicit shareholder votes to approve the merger.
The statement read that Merrill was only permitted to pay employees required compensation, including salary and benefits. However, it neglected to mention Bank of America’s authorization of the bonuses.
The complaint, filed in the U.S. District Court for New York’s Southern District, charges the proxy statement as materially false and misleading.
Federal law requires companies to divulge all corporate transactions. Failing to disclose that a struggling company will pay out billions of dollars in performance bonuses obviously violates that duty, said SEC’s Director of Enforcement Robert Khuzami.
Merrill, which lost $27.6 billion last year, ended up paying their employees $3.6 billion in cash bonuses on Dec. 31, a day before the merger closed. Shareholders were not told about this agreement at the time they voted on the merger said David Rosenfeld, Associate Director of the SEC’s New York office, who filed the complaint.
The $33 million fine is less than 1 percent of the $3.6 billion in bonuses the companies paid, and lied about.
In omitting pertinent information about bonus payments in their proxy statement, Bank of America violated the Exchange Act of 1934, and must pay a financial penalty.
The settlement if unlikely to end the regulatory troubles of Bank of America. According to a press release sent out by the SEC on Monday, its investigation of Bank of America will continue.